Gilts Still Shining Despite Dark Clouds

The economy is creaking, inflation remains stubbornly high, and the budget deficit continues to climb.

Such a toxic economic backdrop would be enough to scare off investors but the resilience of U.K. government bonds suggests the haven appeal of gilts hasn’t been lost yet.

Gilt yields are near their lowest levels of the year as investors pile into assets perceived to be safe in the face of
this week’s financial flare-up in Cyprus. Market participants remain hopeful that the Bank of England will also take steps to stimulate the economy, possibly by expanding its government bond purchase program, a policy known as quantitative easing that has already seen £375 billion ($567 billion) of purchases since 2009.